Plato Investment Management's Don Hamson

The Labor party’s proposal to cut excess franking credits should be countered with a compromise involving a combination of limited superannuation balances and reasonable caps on the annual refund amount, according to Don Hamson, managing director of Plato Investment Management.

Speaking at a media briefing in Sydney, Hamson – whose firm manages active income funds – said that a compromise was “the best way to go”.

Hamson echoed the suggestion of financial services consultancy firm Rice Warner, who last year suggested a total limit on superannuation of $3.2 million.

“I would think the best way is probably a combination,” Hamson said about alternatives to the cull.

The first ingredient in that combination would be a “reasonable benefit-type” limit, he explained.

“If you’ve got more than whatever that limit is – Rice Warner said $3.2 million – then that’s all you need for retirement,” Hamson said.

He noted that the average balance of the 100 largest self-managed superannuation funds in Australia was approximately $100 million and said the change would release “tens of millions of dollars to be taxed”.

The second part of the compromise, Hamson said, should involve a limit on the amount of excess imputation credits that people are allowed to receive.

“Maybe you still say ‘well, some people are getting $40,000 or $50,000 in refunds because the maximum [superannuation balance] is still quite high… maybe then have a $10,000 maximum,” he said.

Hamson explained that Plato had completed a survey of their clients to ascertain what their preferred alternative to the Labor Party’s franking credit policy is. The survey received “about 1400 replies”.

Plato firstly gave clients options to limit the amount of refunds a person could receive – $10,000 or $15,000.

“Only about ten per cent of our clients went the $10,000,” Hamson said. “My assumption is that the majority of them get above $10,000 [in franking credit refunds annually] now, so only the ones that get less than $10,000 think it’s the best one.

“About 25 per cent said you [should] get a maximum of about $15,000 per person,” he continued.

“Then we also had a third option. We didn’t specify the amount but we said, ‘what if you just limited the amount in super, full-stop?” Hamson said. “And 60 per cent of clients actually said that was the best way.”

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning.
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